This post is the old post that talks about the REC 2011-12 issue, please read about the current REC tax free bonds 2012-13 issue here.Â
REC (Rural Electrification Corporation) is going to issue tax free bonds and the issue will open on March 6 2012 and will close on the 12th of March 2012. They had issued infrastructure bonds earlier, and these tax free bonds should not be confused with them.
When you buy 80CCF infrastructure bonds, the amount you invest in those bonds get reduced from your taxable income but in these bonds that’s not going to be the case. The interest on these bonds will be tax free and they are similar to the other tax free bonds like the HUDCO, NHAI and PFC issues. For the two of you interested in knowing this – these bonds are tax free under Section 10(15)(iv)(h) of the Income Tax Act.
Now on to the issue itself and let’s start with the high credit rating that the issue has got. The REC tax free bond issue has been given the highest rating by all issuers since the government owns the majority stake (66.8%) in REC, it has been consistently profit making, this is a secured issue, and it has also been granted the Navratna status by the government. The issue is rated “CRISIL AAA/Stable†by CRISIL, “CARE AAA†by CARE, “Fitch AAA(ind)†by FITCH and “[ICRA]AAA†by ICRA.
This is a Rs. 30 billion or Rs. 3,000 crore issue and the minimum application size is Rs. 5,000 with each bond having a face value of Rs. 1,000.
There are two series which will pay interest every year and the maturity on one series is 10 years while the other one is 15 years. The interest rate is slightly higher for retail investors and retail investors are defined as resident investors who invest less than Rs. 1 lakh in the bond issue.
Unfortunately for NRIs, they can’t invest in this bond issue – the prospectus doesn’t explain why NRIs are barred from investing in these bonds.
These bonds will list on the BSE and will only be issued in dematerialized form. Here are the details on these bonds.
| Options | Bond Series 1 | Bond Series 2 |
|---|---|---|
| Tenor | 10 years | 15 years |
| Interest for Retail Investors | 8.13% | 8.32% |
| Interest for Other Investors | 7.93% | 8.12% |
| Face Value | Rs. 1,000 | Rs. 1,000 |
If you compare this with any of the earlier issues you will see that the interest rate offered is very similar, and I think these bonds make a good investment option for the fixed income part of your portfolio especially if you are in the 30% tax bracket. Some people have lamented the fact that the interest is not reinvested automatically and you will have to find alternate means to reinvest that interest and if you need the money 10 or 15 years from now and aren’t interested in any interest income then that’s probably valid (although you should consider inflation in that case and also read my detailed post with the comparisons)but other than that I think these tax free bonds offer a good opportunity to take advantage of the high interest rate environment that prevails today. I think the slowing economy is going to force RBI to bring down rates and these type of rates aren’t going to be on offer for very long so waiting for better rates is not be very prudent at this stage.
I’m sure a lively discussion is going to take place on listing gains in the comments section, but I am neither knowledgeable enough to say how much listing gains you can expect nor am I interested in these short term gains so I’m not going to be of any use there. Anything else, leave a comment and I’ll try to answer it.
TO SIR CAN U PLS TELL ME HOW BECOME THE BROKER FOR THESE BONDS..
I MEAN THE ELEGIBLITY
the amount of comm
whether TDS will be deducted on that sum
any idea what is record date for interest in REC BOND 7.04% PA Tax Free S2 (RECLTD-N2.NS) in year 2013
Hi Ajay,
Interest payment date for REC tax-free bonds issued last year is December 1st. So, I think the record date should be 15 days prior to that.
http://www.onemint.com/2013/07/04/interest-payment-dates-of-tax-free-bonds-issued-during-fy-2011-12-2012-13/
hi Shiv
What you recommended for REC 7.04 % bond RECLTD-N2.NS , current rate is 1003
better to sale or hold i see Bond down by 5-6% in last 1 month
Ajay
Tax-free bonds to be issued this financial year would carry higher interest rate than the bonds issued last year. REC 7.04% bond’s current YTM is 7.9747%. Looking at the current interest rate scenario and if any AAA rated issue comes in the next 20-30 days, I think one should switch his/her existing investment to the new one. I think your existing REC bonds should give you a better price than Rs. 1003 in the next few days.
I have not received the interest for REC infrastructure bonds. Bonds where allotted on 28Feb 2012 in demat format. Kindly let me know where I can raise this issue.
Thanks in advance.
Hi Rajeev… You should contact the Registrar for the same, the details of which must be there on the allotment advice.
Kindly inform me as to when can i expect to receive 1st interest payment from REC
1st interest payment has already been made on July 1st, 2012. Please check your bank account. Now, the 2nd interest payment will be made on July 1st 2013.
I see a ECS credit of Rs 761/- on 3rd July for REC bonds. But I had bought 25 bonds during the initial offering (i.e with interest of 8.32%) and then purchased additional 10 bonds from the market. Did everyone receive the correct interest from REC? Thanks.
Anybody else who received the interest?? Whom do we contact to sort this out. Please help!!
Hi Bhaskar… I did not invest in the REC Tax Free Bonds issue otherwise I would have shared my experience here. But, in this case, you can calculate the interest yourself.
On 25 Bonds – Rs. 25000 * 96/365 days (From the Deemed Date of Allotment March 27th till June 30th) * 8.32% = Rs. 547 approx.
On 10 Bonds – Rs. 10000 * No. of days from the date of investment till June 30th * 8.12%
I hope you get close to the figure of Rs. 761.
Many many thanks Shiv. Your calculation is perfect.
I was unduly worried.
You are welcome Bhaskar!
I could help you, that is one good Karma… 🙂
can i purchase these bonds now..are these bonds are available for purchasing , please tell me ,its urgent for me…
Yes, you can buy these bonds from the secondary markets. These bonds are listed on the BSE and Rs. 1028.37 was today’s closing price.
pl let me know whether these bonds can be assigned to banks and loan can be availed… its urgent…. pl reply
Yes, these bonds can be pledged or hypothecated for obtaining loans.
Source: REC Tax Free Bonds prospectus.
when is first interest due on REC TFBs. what would be the record date
Every year July 1st is the Interest Payment Date for REC Tax Free Bonds. So, July 1st, 2012 being a Sunday, you’ll get the interest on July 2nd this year. Record Date is 15 days prior to the relevant Interest Payment Date.
Hi Pune Guy… You can check the quotes of these Bonds/NCDs listed on the NSE with this link:
http://www.nseindia.com/live_market/dynaContent/live_watch/equities_stock_watch.htm?cat=SEC
Here is the link specifically for REC Tax Free Bonds:
http://www.bseindia.com/bseplus/StockReach/StockQuote/Equity/821REC27/812REC27/961744/COMPANY
How do you buy these on the secondary market ? Infact, I can’t even figure out where to go looking for a quote on, say, icicidirect.com.
You can buy these bonds online through icicidirect.com or some other stock broker either online or offline.
Shiv,
Any other new issues of TFBs in pipeline?
Hi Amlan… There are no such announcements by these cos. as of now. IIFCL was planning to come out with Tax Free Bonds before June (by May-end) but dont know what happened to their plans.
Source: http://www.thehindu.com/business/article3353212.ece
NHAI will come up with such an issue in the 3rd quarter.
Hi Manshu… In fact, I think this is one of the best times to issue these Tax Free Bonds again. When these tax free bonds were coming in the months of January & February, interest rates went down to the levels of 8.15% to 8.30% after touching 9%. Throughout March & in the first couple of days of April, Bond yields have hardened again to the levels of 8.70%+. If I was required to raise money through these kind of bonds, I would have definitely done that within next 10-15 days.
The problem behind listing at a discount lies somewhere between demand & supply for these bonds. On a listing day, there is no demand but supply is huge. Also, due to hardening of yields, bond prices come down naturally. Investors should buy these bonds from the secondary markets now with a medium to long term perspective.
It will be interesting to see if anyone else issues them, I would doubt that give the current scenario but at the same time I think investors have some pretty good options when it comes to investing in them through the secondary market.
Hi
REC Tax Free Bonds listing has happened on BSE today. Bonds listed at Rs. 984 against the Face Value of Rs. 1000, touched a high of Rs. 988.80, a low of Rs. 960.15 and currently trading at Rs. 975. One more poor listing in the series of Tax Free Bond issues. It is again going to hit investors’ sentiment in a negative manner.
Wow Shiv – looks like this party is over, but I guess with the beginning of the new financial year – they wouldn’t issue any more tax free bonds for a few months, right?
Hi Shiv,
Any idea when the listing will happen. Its already allotted. Thx.
Hi Mr. Bhaskar
REC Tax Free Bonds will list on the BSE on Wednesday, April 4th.
Source:
http://www.bseindia.com/cirbrief/new_notice_detail.asp?noticeid={ED657E16-C67A-48B1-90AF-F486B3FFDD62}¬iceno=20120403-6&dt=4/3/2012&icount=6&totcount=7&flag=0
Many thanks.
HUDCO retail tax free bonds are available at Rs 960 per bond in secondary market against the face value of Rs 1000. It makes sense to buy them if one is in 30% tax bracket right?? Why should we subscribe to new issues at Rs 1000 when comparable products are available at a discounted value?
Yes, I would agree with that train of thought.
Dear Sir,
I had applied in REC bond macrh 2012 but HUDCO is listed 55 rs minus against issue price of 1000. So can i withdraw my REC BOND application ? or wait for allotment and listing.
Because bond market premium is going down and it will result in REC listing below issue price.
Please reply me as soon as possible.
Shafin Rupani
Hi Amlan
The issue is subscribed 1.583 times overall and the Retail portion is subscribed 0.77 times, Rs. 581 Crores against Rs. 750 Crores reserved. Allotment and listing expected to happen in the first week of April.
Thanks Shiv for your prompt response. It ensures I will get my full allotment.
BTW I am waiting for the allotment and not the listing… 🙂
That was my proactive response.. 🙂